Reciprocal tariff comes into effect, Bangladesh in favourable position

The reciprocal tariff imposed by the US government on Bangladeshi goods came into effect on Thursday. Previously, the United States had been levying tariffs at similar rates on most countries.

Now, with the introduction of varying tariffs for different countries, the dynamics of competition among exporters to the US market are set to change.

To understand how the new US reciprocal tariffs will affect different countries, one can look at a simple comparison involving a basic cotton T-shirt.

Until now, US Customs had been collecting a regular tariff of 16.5 per cent on such items. Starting now, Bangladesh will face an additional 20 per cent reciprocal tariff on top of that rate.

According to US time, the reciprocal tariff came into effect at the first hour of Thursday (10:01 am Bangladesh time). Any goods loaded onto vessels bound for the United States from the jetties of Chattogram Port after that time will be subject to the new tariff. It usually takes 30 to 45 days for containerised goods from Chattogram to reach ports in the United States.

To estimate the impact of the new tariff, data from the United States International Trade Commission and the US tariff schedule have been reviewed. Let’s take a Bangladeshi cotton T-shirt as an example.

Last year, Bangladesh exported each T-shirt to the US at an average price of USD 1.62 (approximately Tk 199). The US collected USD 0.27 (Tk 33) as tariff on each shirt. Now, with the 20 per cent reciprocal tariff, an additional USD 0.32 (Tk 39) will be charged. Altogether, importers in the US will now pay an average of USD 0.59 (Tk 72) in tariff for each Bangladeshi T-shirt.

India is one of Bangladesh’s major competitors in exporting cotton T-shirts to the US. The average export price of Indian T-shirts to the US is higher than Bangladesh’s.

On top of a previous 25 per cent tariff, US President Donald Trump imposed an additional 25 per cent tariff on Wednesday. As a result, US importers now have to pay a total of USD 1.25 in tariff for each Indian T-shirt.

Another competitor, Vietnam, will also have to pay more tariff than Bangladesh for exporting cotton T-shirts to the US. The combined tariff, including the reciprocal tariff, on each Vietnamese T-shirt stands at USD 0.98.

China, however, exports T-shirts to the US at a lower price than Bangladesh. Since 2020, due to the trade war, China has already been paying an extra 7.5 per cent tariff.

The US is expected to announce a final reciprocal tariff on Chinese goods soon. Assuming a 30 per cent reciprocal-tariff, Chinese exporters would have to pay USD 0.82 in tariff per T-shirt.

Apart from India, Vietnam, and China, Bangladesh also faces competition in the US apparel market from three other countries—Indonesia, Pakistan, and Cambodia. The tariff per T-shirt for Indonesian exporters stands at USD 0.90, for Cambodian exporters USD 0.89, and for Pakistani exporters USD 0.52.

Myanmar was once considered a potential future competition to Bangladesh’s garment sector. However, with a 40 per cent reciprocal tariff imposed on its goods, Myanmar will now have to pay USD 1.88 in tariff for each T-shirt exported to the US, which exceeds even the export price of a Bangladeshi shirt. As a result, they have effectively fallen far behind in the race.

Similarly, African nation Ethiopia was also once perceived as a rival by Bangladeshi exporters due to its tariff-free access under the African Growth and Opportunity Act.

However, after breaching the terms of the agreement, the US removed Ethiopia from the deal on 2 January, 2022.

Last year, Nicaragua and Honduras were the top two exporters of cotton T-shirts to the United States. Both countries enjoyed zero-tariff benefits under the Central America Free Trade Agreement (CAFTA), subject to certain conditions.

However, the reciprocal tariff has changed the scenario for them as well. Nicaragua is now subject to an 18 per cent reciprocal tariff, while in May this year, the US collected an average of 10 per cent tariff on T-shirts imported from Honduras.

In summary, comparative analysis shows that under the new US reciprocal tariff policy, Bangladesh is required to pay higher tariff than only one competitor—Pakistan—and that too by just USD 0.07 per T-shirt.

All other competing countries now pay more in tariff per T-shirt than Bangladesh. Even where the tariff rate is the same, a higher average export price leads to a higher tariff amount.

The United States is Bangladesh’s single largest export market. According to the National Board of Revenue (NBR), Bangladesh exported goods worth USD 8.76 billion to the US in the last fiscal year, of which USD 7.6 billion came from apparel exports. Until now, the average effective tariff rate on Bangladeshi products in the US was 15 per cent.

For apparel specifically, the average effective tariff was 16.77 per cent. With the new 20 per cent reciprocal tariff, the overall effective rate will increase.

However, despite the higher rate, Bangladesh’s position remains equal to that of Vietnam, one of its main competitors.

In fact, Bangladesh’s tariff rate is now lower than that of both China and India. Overall, under the new tariff structure, exporters believe that Bangladesh will remain competitive and in many cases, even ahead.

Asked about this assessment, Mohammad Abdus Salam, Managing Director of Asian-Daff Group, a leading apparel exporter to the US, told Prothom Alo, “Nicaragua and Honduras are not our competitors. Compared to our main competitor Vietnam, we are in the same position as before. We are ahead of both India and China. Even though our tariff is 1 per cent higher than those of Pakistan, Indonesia, and Cambodia, we are not behind. And with Ethiopia no longer enjoying US trade benefits, it is no longer a threat. In short, the anxiety we had over the 35 per cent tariff has now been put to rest.”

*This report, originally published in Bangla, has been rewritten in English by Farjana Liakat